February 5, 2012

Promoting startups: My testimony for the Senate Committee on Small Business and Entrepreneurship

I was honored and excited to have been able to testify this week before the Senate Small Business and Entrepreneurship Committee on how we can accelerate startup success in the US. Below you’ll find my written statement for the record, which is based on some ideas that I and others from Startup Massachusetts put together for the White House last month.

I have to say my expectations were limited of this whole process, yet it was one of the most fascinating moments in my career. I had the realization: “This is how we shape policy in our country,” and it was very cool to be part of it. I felt that there was real listening going on. Now we have to wait and see what comes out of the law-making effort to follow.

As always, I’m interested in your comments and suggestions.

– Tim

[From Tim’s aide Sarah] Hi guys, If anyone is interested in seeing what Tim said, here are the key moments in the video:

15:12: Session begins

23:25 – 31:00 Tim is introduced by Senator Scott Brown and fields questions on the importance of training talent and crowdfunding

64:40 – 74:40: Tim’s delivers his presentation on his five policy suggestions for Congress

128:55 – 130:14: Closing remarks

Tim giving his closing statement to the Senate Committee on Small Business and Entrepreneurship

The Senate Committee on Small Business and Entrepreneurship
Developing and Strengthening High-Growth Entrepreneurship
Wednesday, February 1, 2012

Written comments for the record

Thank you for inviting me to speak today. As you know, I am the CEO and Founder of Cambridge Innovation Center. CIC houses approximately 450 startup companies in a 150,000 square foot office tower in Kendall Square, Cambridge. We are told that CIC has more startups under one roof than any other building on the planet. More than a billion dollars have been invested in these companies, and we have been a launch-pad for several well-known companies, most famously Google Android.

This past December I was asked by my peers in Massachusetts to speak for our state’s innovation community at the Startup America summit at the White House. The ideas abstracted here come from a broad group of Massachusetts startup leaders.

We believe startups are at the root of restoring the US to full economic health. As is now well known, US Census Bureau and the Kauffman Foundation published findings recently that say that over the last quarter century all net new jobs (and then some) in the United States have come from companies five years old and younger. Existing firms (that is, those 6 years old and older) collectively lost jobs during that same quarter-century period analyzed (1980 to 2005). For every job lost by existing firms, new firms generated three. It seems clear that supporting startups and entrepreneurship is the key to job creation.

How to do so is a legitimate question for debate. My colleagues and I, however, have settled on five concrete suggestions: ideas worth exploring. The policy changes that follow have the potential to make a difference:

Reform visa laws: Many startups are led by bright young people who come here to study from overseas. Yet our laws force most such people to go home. Let’s change visa laws to make it easier for foreign-born students who earn degrees from US universities to stay and start companies in the US. They will not take American jobs, they will create American jobs.

Streamline IPOs: Startups typically require investment to get going. To be willing to invest, investors need a way to get their money back, typically through a public stock offering (an IPO). Yet today’s laws make it very hard for smaller, new companies to go public. Let’s change laws to create an “on ramp” to being a public company, by reducing paperwork requirements for the first 5 years after an IPO.

Enable crowdfunding of startups: Another way to help startups is to make it easier for everyday people to support would-be entrepreneurs. Yet today its illegal for a bunch of everyday people to pool funds to help someone get a startup going. In other countries, they call this micro-finance, and it is a major force for change. Let’s change laws to permit crowd-funding of startups in the US. Valid concerns about fraud must and can be addressed as we do this.

Ban non-compete agreements: We all studied in school that “labor mobility” is key to a healthy economy. Yet the proliferation of the use of “non-compete agreements” has made it much harder to start new companies. And for some, such agreements amount to indentured servitude (e.g. I am forced to stay with my company, because I can’t take another job in my chosen field). Many states already ban these agreements. And those states that ban them have more startups. Let’s change laws to ban non-compete agreements in employment agreements. While this has traditionally been a state-by-state issue, there is a valid role for the federal government to fix this.

Retrain US workforce to meet changing demands: We have thousands of unfilled jobs, despite today’s high unemployment. Insiders at community colleges admit that there is no tight link between what the market needs, and what they teach. Yet the shortage of qualified tech employees holds back the creation of more startups. This is a fixable problem, and other countries address it head on. Let’s focus the government’s workforce development programs on training the workforce needed for the new Millennium. We should not have both high unemployment and hundreds of thousands of unfilled job openings, particularly in tech fields, such as software developer jobs.

There are bills already in front of congress to address #1, #2, and #3 above. We are hopeful that the Senate will find some of these proposals to have merit, and that they will work to influence congress to enact them.

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Comments (8)

Tim, many thanks for representing our community in Washington–I can think of nobody better qualified or better equipped.

One thing I would add is: don’t be blinded by Hollywood lobbyists who tell you that you must choose between a thriving entertainment industry and a free, open Internet. We are still learning how to create content and services on the Internet that people will use and pay for, creating new jobs in Massachusetts and the rest of the country. So don’t give Hollywood the ability to choke the life out of a young startup and send teenagers to jail for using their favorite songs on film clips made on their cell phones.

Great stuff, Tim! Thanks for sharing this prior to your attendance as well as for representing tech-related small businesses and startups in DC.

If I were to add anything, it would be the following:

Title: “Discourage state and federal legislation that stifles healthy competition”
Description: “Many tech-related small businesses and startups are founded with a core mission of disrupting an industry or current market leader; An attitude many of our nation’s largest companies were founded on many years ago. We should encourage this behavior and discourage legislation that attempts to stifle these entrepreneurial ambitions. An example of such legislation is the New York City law that prohibits short-term renting of living space. This law was encouraged by the hospitality industry and almost unilaterally-aimed at stifling the competition, Airbnb, from continuing to grow and succeed. We should discourage this type of legislation as it is a direct disincentivize for our nation’s entrepreneurs.”

I understand that’s not what you’re speaking about, but I wanted to point out the threat to our friends in the consumer internet space created by giving the entertainment rights holders the ability to shut off entire websites. They have proven that they will abuse any power granted them.

Tim, thanks again for your continued service to the Boston/Cambridge community!

In it I describe, among other things, why I use (and most other MA companies use) non-competes. Non-competes are absolutely in the self-interest of individual businesses. They simply aren’t in the collective self-interest. No responsible business leader would fail to use them while their competitors use them. Yet this hurts the overall economy. This is why non-competes represent a tragedy of the commons. I guess it is similar to how one can support higher taxes for all, to deliver better public services, while not being interested in voluntarily and unilaterally paying higher taxes.

I was also in DC 2 weeks ago presenting to Congress a proposal for a new transportation infrastructure: essentially a physical internet
that would help small and large businesses:http://climatecolab.org/web/guest/plans/-/plans/contestId/5/planId/15207
Something more directly related to promoting start-ups would be government backed health care. Start ups canj’t afford health coverage and spouses don’t want their mates working for some place that doesn’t have coverage. Plus it would just make the whole economy more efficient if implemented properly. Longer term, what we really need is some way to introduce the concept of “reason” in DC. I’ve got some concrete ideas but that’s a longer topic requiring beer.